The remaining cash – some £165m – will be devolved directly to schools and colleges to distribute as they wish. Some students may get more than the current £30-a-week maximum while others will get less.

Coalition insiders refused to be drawn on how many students would be given handouts under the reformed scheme, insisting it would be up to individual teachers and lecturers.

But it is believed cash will be focused on those eligible for free school meals – just over 15 per cent of the student body.

Mr Gove said: “There are real questions as to whether it is socially just to be paying 45 per cent of students a cash incentive to stay in learning, when we could be concentrating our resources on removing the barriers to learning faced by the poorest.”

He added: “Schools and colleges will have the freedom to decide on the allocation of the bursary. They are best placed to know the specific needs of their students, and we will give professionals full flexibility over allocating support.”

The existing EMA will be safeguarded until the end of the current academic year.

In addition, all students currently in the first year of their course – who are already receiving the £30 payments – will be eligible for £20 in 2011/12.

But Andy Burham, Labour’s shadow education secretary, said: “Young people are bearing the brunt of this shambolic Government.

“At a time when they should be looking ahead to exams, they are worrying about whether they will have the financial support they need to stay in education – it’s a betrayal of young people and will lead to more of them dropping out.”